In this study price setting and profit determining factors in pricing and temporary pricing of Dunkin Donuts is analyzed.
Dunkin Donuts is one of the largest US based service providers of coffees and baked goods, founded in the year 1950. It is serving more than 3 million customers per day. It provides variety of donuts and dozens of coffee beverages, sandwiches, baked food items etc. Its prices are comparatively higher than that of their competitors except Starbucks.
“Dunkin’ is trying to close the gap between itself and Starbucks. Although it makes more money on breakfast sales overall than the Seattle-based chain, the average Dunkin’ check is just $1.85, vs. $3.75 at Starbucks, notes food analyst Tom Miner of research firm Technomic.” (Hamilton & Sarasota, 2007).
Pricing decisions are set after considering the pricing goal and then the base price is set for a product or service. Prices are usually set after considering the cost involved plus targeted profit. Price is the basic regulator of entire business and can affect the company’s competitive position and market share of its product. Purchasing decisions of the consumers are mostly influenced by prices. The price a company charges for its product or service is an important factor in determining sales.
The overall marketing strategy of the company must be considered while taking pricing decisions. At Dunkin’ Donuts prices are set by the amount of worth a customer derives from purchasing a good or service, “They Measure value by dividing the estimation of the quality of a customer’s store and product experience by price, an expression known as Value = Experience / Price. This term can also be used to convey the notions of cheapness, bargains, or just price, though these definitions are typically not used in Dunkin’ Donuts pricing materials.” (Glossary of pricing terms: Value, n.d).
Pricing decision must be taken after determining company’s goal as well as by studying competitors’ strategy in the market. In order to attain maximum profit, different pricing strategies must be introduced in different segments. Different pricing strategies should be adopted based on the changing market conditions. Pricing must take into consideration the general business environment such as competitive or legal environment. After creating and implementing pricing strategy, it has to monitor and make changes accordingly.
Profits & Pricing Decision
Profit can be increased by reducing or increasing price. However, changes in price will not always result in profit. Price can be increased only if the situation demands. Increasing price of raw materials, labor cost, promotional cost etc will force the company to increase its product prices. Sometimes pricing and timely availability of the product determine the profitability of a product. Dunkin Donuts provides quicker service which meets the demands of professionals, blue collared workers, kids and female executives.
Temporary Price Promotions
The current state of the economy has a considerable influence on the pricing decision. Temporary pricing methods can be adopted based on the economic situation of the country. When economic conditions are good and consumers feel price conscious, then the prices can be increased. Pricing is an important decision which generates profit and involves quick decision making process based on the business situation. “Creative marketing campaigns that break through the media clutter and reach coffee enthusiasts regardless of their brand preference may help to grow the overall market, even if only temporarily.” (Cynthia, 2008).
Conclusions & Recommendations
Recently Dunkin Donuts has increased its prices which have been taken negatively by its customers. Company must take care not to increase its prices based on cost instead it must concentrate on reducing cost involved in the business process or production process. Price reduction is always getting recognition of the consumers and sudden increase in the price will be taken negatively by majority of the customers. Reducing the price will not attract much of the company’s existing customers but increasing the price will reduce the existing customers too.
However, some consumers rely heavily on price as an indicator of product quality especially when they must make purchase decisions with incomplete information. Studies have consistently shown that consumers’ perceptions of product quality vary directly with the price. Thus higher the price, better the quality is perceived to be. Consumers make this judgment particularly when no other clues as to product quality are available. But coffee’s taste is the realizing factor which boosts sales and creates long term success for the company. Consumers’ perceptions of quality and taste can of course influence the reputation of Dunkin Donuts.
Cynthia, Stephens. (2008). Something’s Brewin’ at Dunkin’: Taste matters. Compete. Web.
Glossary of pricing terms: Value. (n.d.). Web.
Hamilton, Anita., & Sarasota. (2007). Global business: Brand new buzz. Time: Business & Tech. Web.